Stock Watch

Sainsbury’s share price dips after H1 results

CMC Markets

Sainsbury’s share price has started off a little lower this morning, despite the supermarket giant revealing a solid set of first-half figures.
 

Total retail sales, excluding fuel, increased by 7.1%. On a like-for-like (LFL) basis, sales increased by 6.9%. Digital sales surged by 117%, and that accounted for nearly 40% of group sales.

Sainsbury's share price dips after loss

The first half pre-tax loss was £137m, but it's worth remembering that the group incurred costs of £438m because of the closures associated with Argos. Underlying pre-tax profit – which strips out exceptional items, was £301m. The supermarket spent £290m on costs relating to the pandemic, but that was largely offset by the £230m business rates relief.

Sainsbury’s revealed a special dividend of 7.3p in lieu of the last year’s final dividend, and an interim dividend of 3.2p was announced too. The cash payouts should boost the stock's popularity with income-seeking investors, helping the Sainsbury's share price, and it projects a positive image as it suggests it has turned a corner in terms of the health crisis.

The company is keen to lower grocery prices and ramp up the number of new products its offers. In addition to that, it will continue to integrate Argos into its model. By March 2020, it aims to have 240 Argos outlets and 150-200 Argos collection points in Sainsbury's stores. That should help the process of transforming it into a general retailer.

Pandemic hits Sainsbury's share price              

Sainsbury’s share price hit a three-month high in July, on the back of the first-quarter numbers. Grocery sales increased by 10.5% and clothing rose by 26.7%. Total retail sales excluding fuel jumped by 8.5%, and on a LFL basis it increased by 8.2%. The company was one of the benefactors of the health crisis, as demand for food and household goods surged.

The pandemic has been a doubled-edged sword for the likes of Sainsbury’s, as demand has increased. At the same time, the cost of doing business rose as health and safety measures had to be stepped up. In April, Sainsbury’s said that Covid-19-related costs will dent profit by up to £500m, but it has since lifted that forecast.

Grocery demand set to rise again

The government's ‘Eat out to Help Out’ scheme ended in August, and in turn that prompted a jump in demand for groceries, according to the research group Nielsen. The independent company said that UK grocery sales grew 8.3% in the four weeks until 3 October. It's understood that Sainsbury’s sales rose by 5.1% in that time period, while Morrisons was the outperformer of the ‘big four’ as its sales increased by 8.7%. Kantar Research said there was "limited evidence" of stockpiling at grocery stores.              

The Sainsbury’s share price was hugely volatile in March on the back of the pandemic, but in the past few months it has been largely range-bound between 180p and 210p. In the past two months, the stock has been pushing higher and a break above 210p should put the 230p area on the radar. A move lower from here might find support at the 50-day moving average, at 195p.